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Decarbonising Real Estate: What role can investors play?

Energy in buildings is responsible for 17.5% of emissions, while their construction drives demand for steel and cement. We can not reach zero emissions, without tackling real estate.

By Jana Hock, Senior Research Officer, ShareAction

From sprawling cities or countryside cottages, buildings surround us.

They form an integral part of how we live and work.

Energy consumption in buildings is responsible for over 17.5 percent of global greenhouse gas emissions.

Building construction is also a key driver behind demand for steel and cement, which are, together, responsible for another 10.2 percent of emissions.

We can't reach net zero emissions without tackling buildings.

And this topic is quickly moving to the forefront of European policy making.

Policy changes leave building assets at risk

As the European Union debates the inclusion of buildings’ in the emission trading system (ETS), it is tightening standards for energy performance and raising the bar for sustainable investments into green buildings.

In the UK, the Future Homes Standard equally aims to reduce emissions from the building sector.

This will mean extensive retrofits for existing building stock, and tough standards for new construction.

Those that fail to meet this high bar will likely be a loss-making investment.

Delaying action would be very costly

To reach the goals of the Paris Climate Agreement – signed by all the world’s governments – every life stage of the building sector must be considered – from construction to demolishment.

There will need to be a reduction in the emissions caused by the construction phase, for example those from steel, windows, insulation used in the process – what we call embodied carbon.

At the same time, emissions from the energy used to heat buildings, keep the lights on and run our daily appliances – their operational carbon - will also need to be tackled.

And these reductions need to happen soon.

A 10-year delay in action would cost at least $2,500 billion.

Key decarbonisation targets for buildings

All new buildings will need to run on net zero operational carbon by 2030, and the embodied carbon will also need to fall 40 percent over the same period.

For existing buildings, five percent of stock will need to be retrofitted annually, to ensure net zero operational and embodied carbon by 2050.

This is no small feat, but it is possible. And investors are in a unique position to ensure this timely transition.

What can investors do?

Investors can engage with laggards in the industry to raise.

Our new investor briefing on decarbonising buildings highlights the technical challenges that need to be overcome, and provides guidance to investors on how to engage with companies in their portfolio on the solutions.

This includes:

  • Requiring companies along the buildings value chain set net zero targets for 2050, with relevant short- and medium-term milestones.
  • Demanding companies provide a plausible climate strategy based on scenario and carbon pricing. This should include a company’s spending plans, and quantifiable greenhouse gas emission reductions from all main emission sources.
  • Urging companies to use life cycle assessments and environmental product declarations (EPD) as a foundation for decision making.
  • Last but not least, demanding companies pursue property labelling in line with best practice standards, such as the EU’s Level(s) guidelines, and disclose their Scope 1, 2 and 3 emissions, alongside TCFD reporting.

The building sector remains, and will continue to remain integral to our daily lives. The nature of the sector – and the high-carbon processes in construction, and the immense costs associated with delayed action -means the window for effective engagement is quickly closing.

Investors have a vital role to tackle this high-carbon sector. Delaying action would be a costly mistake.

View our investor briefing >>

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